Aid and growth: New evidence using an excludable instrument
By Axel Dreher, S. Langlotz. Canadian Journal of Economics/Revue canadienne d'économique, 2020
146 citations recorded by the source corpus.
We use an excludable instrument to test the effect of foreign aid on economic growth in a sample of 96 recipient countries over the 1974-2009 period. We interact donor government fractionalization with a recipient country’s probability of receiving aid. The results show that fractionalization increases donors’ aid budgets, representing the over-time variation of our instrument, while the probability of receiving aid introduces variation across recipient countries. Controlling for country- and period-specific effects that capture the levels of the interacted variables, the interaction provides a powerful and excludable instrument. Making use of the instrument, our results show no significant effect of aid on growth in the overall sample. We also investigate the effect of aid on consumption, savings, and investments, and split the sample according to the quality of economic policy, democracy, and the Cold War period. With the exception of the post-Cold War period (where abundant aid reduces growth), we find no significant effect of aid on growth in any of these sub-samples. None of the other outcomes are affected by aid.
Subfields: Development, Information Systems, Sociology and Political Science
View Paper: https://www.semanticscholar.org/paper/b30ec9278e775e6467631b5ada76f78827af65e2
Citations in the corpus
- Aid and Growth at the Regional Level (2015, unknown): “37 We overcome this potential shortcoming by interacting the indicator of whether or not a country has passed the IDA threshold with a recipient region’s probability to receive aid, following recent innovations in the country-level literature on aid effectiveness (Werker et al., 2009; Ahmed, 2013; N”
- The effect of aid on growth: evidence from a Quasi-experiment (2014, unknown): “Dreher and Langlotz (2015) use the interaction between donor government fractionalization (by party) and a recipient government’s probability of receiving aid from the donor to instrument for aid, and find no significant effect of it on growth.”